Green bonds may be trillion dollar market after 2020, Citi says

[BERLIN] Green bonds may shake off their infancy over the next few years and grow exponentially into a US$1 trillion conduit for global climate investments, said Citigroup Inc banker Michael Eckhart.

Market issues linked to the debt including certification, investment guidelines and analytic methodologies still need fine-tuning over the next two or three years, said Mr Eckhart, global head of environmental finance at Citi.

Quicker growth for green bonds is the "end game" of a 40-year evolution of clean-energy finance, he said.

Green bonds "will grow very rapidly once the market framework matures, growing first into hundreds of billions post-2020 and then eventually into a trillion-dollar market," the banker said in an interview in Berlin.

Mr Eckhart helped write the initial voluntary rules that evolved into the Green Bond Principles and will attend the group's annual meeting in London on July 16.

As yet, there's no industry definition for what makes a green security. Financial market participants like Mr Eckhart say the emergence of such standards should remain voluntary, taking a cue from market development and not assume a rigid government-defined character, a step taken by China recently. Non-governmental organisations, in part frustrated by the pace of green bond growth, have also offered solutions.

A record US$46 billion of green bonds were issued worldwide last year, and the market may expand to US$56 billion this year, according to Bloomberg New Energy Finance.

China authorised the first sales of the securities in December, the same month that the People's Bank of China released a Green Financial Bond Initiative defining a national standard for green bonds.

The example set by China may spur faster evolution of voluntary international standards. The Green Bond Principles executive committee kick-started work as recently as 2014, made up of 18 leading Green Bond investors, issuers and underwriters.

The group includes Blackrock Inc, Citi, HSBC Holdings Plc, the European Investment Bank - the issuer of the first Green bond in 2007 - and the California State Teachers' Retirement System.

Green bonds are getting a nudge from updated climate pledges submitted to the United Nations, which in December forged a deal involving almost 200 nations vowing to work toward reducing pollution.

Divesting fossil-fuel holdings is accelerating, Mr Eckhart said separately in a speech in the German capital. "The writing's on the wall" for fossil-fuel power generation, the "war is over," he said.

Still, while committed to expanding green bond portfolios, development banks are taking a cautious approach to issuance. Germany's KfW development bank, the nation's third-biggest by assets, will make new loans for climate protection programs worth as much as US$30 billion this year. Its new green bond issuance may reach US$4.5 billion.

Bank of America Corp was the top corporate green bond issuer so far this year, according to Bloomberg data.

The race to define and certify green bonds is being prodded by a few groups. Eleven development banks including the EIB put together a plan in December to harmonise reporting standards for the securities.

BNP Paribas said last month it's working on a bond structure for emission-reduction projects registered with the United Nations.

BLOOMBERG